Additional Trading Ideas:
In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these may need to see a break past key support or resistance:
(bearish ideas) NCR, CFX, CRS, WBAI, P,
NEW BEARISH Plays
TimkenSteel Corp. - TMST - close: 31.34 change: -0.80
Stop Loss: 33.35
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 13, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 449 thousand
New Positions: Yes, see below
Why We Like It:
TMST is in the basic materials sector. They were spun off into their own company back in July 2014 and after a +25% rally the stock peaked near round-number resistance at $50 a share in September. Then two things happened. The stock market corrected lower (mid September through mid October) and crude oil prices started dropping in earnest. While the market recovered from its correction the steel industry stocks did not.
According to company marketing materials, "TimkenSteel creates tailored steel products and services for demanding applications, helping customers push the bounds of what's possible within their industries. The company reaches around the world in its customers' products and leads North America in large alloy steel bars (6"+) and seamless mechanical tubing made of its special bar quality steel, as well as supply chain and steel services. Operating from six countries, TimkenSteel posted sales of $1.4 billion in 2013."
U.S. steel companies have been facing pricing pressures from cheaper imported steel. This has been a factor for the industry for a while. This year steel stocks are getting melted by the bear market in crude oil. Why is oil dragging steel stocks lower? That's because for companies like U.S. Steel (X) and Timkensteel (TMST) they do big business making steel products for the energy industry.
The energy exploration, drilling, and production accounts for 10% of the steel used inside the U.S. each year. There's a lot of metal on all of these oil and gas rigs. They put a lot of metal into the ground for drilling, especially fracking rigs with their horizontal drilling. The energy boom in the U.S. has been a boon for steel companies because the steel products they make for the energy sector have been a higher-margin business.
This year the price of oil has been cut in half with Saudi Arabia launching a not so secret war against all rivals in the oil industry including Iran, Russia, and the surging U.S. shale oil industry. If oil prices get too low the Saudis know that that U.S. oil production will fall when it becomes unprofitable. That's bad news for steel companies.
Shale oil and shale gas wells have a high depletion rate. That means drilling companies are constantly drilling new wells to keep up production. Yet if they stop or slow production because oil prices are too low that's going to cut demand for steel products, which is going to hurt companies like TMST in some of their highest margin business.
Shares of TMST just spent the last two weeks consolidating sideways in the $32-33 zone. Friday's move is a bearish breakdown under support at $32.00.
Tonight we are suggesting a trigger to launch bearish positions at $31.15.
Trigger @ $31.15
- Suggested Positions -
Short TMST stock @ (trigger)
- (or for more adventurous traders, try this option) -
Buy the FEB $30 PUT (TMST150220P30) current ask $2.60
Option Format: symbol-year-month-day-call-strike